Question

11. Trey decides to consolidate his debt and

qualities for a personal loan of $10,000 to help
pay off his current credit. He qualities for an
interest rate of 4.29% and is choosing between
a term of 5 or 10 years.
RATE
TERM
MONTHLY PAYMENTS
4.29%
5 years
$185.48
4.29%
10 years
$102.63
Which term will result in the lowest total
repayment, and how much lower will the
repayment be?
A. The 5-year term would be $1,128.80 lower.
B. The 5-year term would be $1,186.80 lower
C. The 10-year term would be $2,315.60 lowe
D. The 10-year term would be $1,186.80 lowe

Answer 1

B. The 5-year term would be $ 1,186.80 lower

Explanation:

The repayment parameters of the $10,000 loan Trey qualifies for are given as follows;

The loan interest rate = 4.29%

The monthly payments for the 5 year loan term = $185.48

The monthly payments for the 10 year loan term = $102.63

The total repayment amount for the 5 year loan term, '
`A_(5 \ years)`' is given as follows;

`A_(5 \ years)` = $185.48 × 5 × 12 = $11,128.8

While the total repayment amount for the 10 year loan term, '
`A_(10 \ years)`' is given as follows;

`A_(10 \ years)` = $102.63 × 10 × 12 = $12,315.6

The difference between the total repayment for the 10-year term and the 5-year term loan,
`A_(10 \ years)` -
`A_(5 \ years)`, is given as follows;

`A_(10 \ years)` -
`A_(5 \ years)` = $12,315.6 - $11,128.8 = $1,186.80

Therefore, the 5-year term is lower than the 10-year term by $1,186.80